Posts Tagged ‘fundraising’

Why do so many first-time venture capital fund managers, who have been a success in their past, cease to act like a success when raising their first fund? Undoubtedly, the fundraising journey is long, on average somewhere between 15 to 24 months for funds under $150 million from firing the gun until the final close. Nowhere is that harder for General Partners, who are new to the investment game and of limited interest to institutional money. Over the past 10 months, I have had first-hand experiences with 6 fund managers in US and Europe and talked to a multitude of placement agents, who have shared their experiences from over 120 such fundraises. Three deadly sins:

General Partners underestimate the three pools of personal capital (cash, credit and investment) that they need to successfully arrive at their desired destination and thrive. They over invest in non-essentials (expensive office space, hiring employees), at the outset, and under invest in external expertise (fundraising, skills development) when they most need it, typically, in the tough grind that follows some immediate success securing a cornerstone investor.

General Partners underestimate the importance of maintaining a high level of self-worth. They allow a “poverty mindset” to quickly become their default position. They jump on the first offer of committed capital driven by a fear of failure, they beg for favours (introductions, expertise) on terms they’d never accept and they fail to act like a peer in front of investors (constantly “pitching” rather than investing appropriate time building a peer-level trusting relationship).

General Partners underestimate the return on their time invested in accomplishing various activities along the “journey”. They spend excessive amounts of time “fine-tuning” their methodology at the expense of articulating the results and value the potential limited partner walks away with. They allow their intellectual curiosity and ego, to lead them into targeting investors, who are highly unlikely to commit, in their desired timeframe. Why? They consciously ignore who they are today (an ambitious first-time manager with an investment thesis yet to be proven, and zero successful exits) and they are overly pre-occupied with who they imagine themselves to be in future for ego reasons (the next Fred Wilson, Bill Gurley, Josh Kopelman).

The final thought: You might be a great investor but first, can you actually create and build a successful business (skills, behaviours, expertise)? I am not talking about a division of a large VC firm, a global bank, a management consulting firm or something you did on the side in university. I am talking about a boutique asset management business. That is the first question your highest potential limited partners are trying to convince themselves about.

Have you ever met anyone who honestly wants to receive an “elevator pitch”? Why do so called experts persist in suggesting businesses and funds seeking to raise capital include one in their conversations and marketing collaterals? I’ll tell you why, their mindset is all about “selling” the individuals, business or Fund and snatching something in return (scarce capital).

Contrast this with suggesting the individuals, the business or the Fund draft a powerful value proposition. 1-2 sentences that dramatises the “value” created for the recipient and the singularity of their approach.

A luxury concierge business, “we help dramatically transform the lives of time-poor and asset rich families.”

An AI Venture Capital Fund, “we invest in strong and dynamic high growth businesses able to harness artificial intelligence to generate breakthrough improvements and superior returns.”

I am not trying to sell a thing, what I do urge you to articulate is the dramatic value and singularity.